March 12, 2021 | AtoZ Markets – Robo Advisors have become extremely popular within the UK, yet despite that not many people actually know what they are or where they came from. Robo advisors are digital initiatives which can allocate you your most suitable basket of investment. This process usually lasts around 10 to 15 minutes, yet they manage your investment service for a long-term basis. Brands such as eToro and Nutmeg are considered the best choice for people looking to get started with Robo investing, so it is always worth to start there if you are intrigued.
Of course, on your search for a Robo advisor, you will most likely look for the cheapest advisor on the market and hey, we do not blame you. That is completely reasonable and normal. Yet before we look into the types of Robo’s, it is good to understand the different types of wealth management they provide through the following four keywords: advisor, fund, discretionary and advisory.
If a company within the UK provides financial advice, they will need to ensure they are first and foremost authorised to make such investment advice with the powers of the Financial Conduct Authority, in addition to understanding your current financial circumstances intimately and up close. This is where the Robo advisors can be misleading as companies know that customers will have no knowledge of the matter anyway, meaning they can ultimately lead you astray. The way you can counteract this possibility, is by reading the terms and conditions of the company and looking into their statements. Look out for the term with similar tones to ‘no financial advice is given’ for example. You can look for more specific financial advice from a financial advisor for example. It is really important that companies remain as transparent as possible with you and to your situation.
A fund is a pot is what is gathered from multiple investors to be invested on your particular behalf. Some of the Robo’s are funds i.e. Nutmeg, which are led by investment specialist officers such as Shaun Port to decide on the day which investments get given to particular funds out there. The risk category is what maps the funds in addition to your actual risk personalised to you. The Robo is what is used to tailor your pre-interactions with Nutmeg, to ensure that you get directed to the correct expertise. They do not make any investment decisions whatsoever.
Discretionary vs Advisory Wealth Management:
If you happen to have a wealth and financial manager that makes the decisions on your investments, you will of course trust them with every decision they happen to make, right? These are what are known as discretionary managers. However, an advisory manager is one that happens to give advice yet leaves the decision up to you to make those moves, that is an advisory manager. Most wealth managers will operate on a discretionary basis, as these decisions will require more money for the processes and that is why it is more prevalent within the business.
Below we have featured one of the Robo investors who operate on a discretionary basis. This competitor has a list of features which you should consider when nearing them. These are the factors which make them more desirable.
Nutmeg’s features include a minimum investment of £500, and with that you are provided with updates on your investments, in addition to the global portfolio which can reduce your risk. The two types of portfolios that they provide, include a Fully Managed Portfolio and a Fixed Allocation Portfolio. The first portfolio mentioned provides an investment team, which is aided by models that quantitatively choose optimal amounts based on low cost ETFs. The other portfolio provides you with funds that match the risk you are willing, and they provide you with a construction portfolio that rebalances the proportions in which your shares/bonds move in price momentum. You will sacrifice some of the returns, yet that should provide you with funds that are cheap as possible through management.
The first package is one that gives you up to 100k and a 0.94% fee and a management fee of 0.35%. If you happen to surge above 100k, the fee falls to 0.54% with a management of 0.35% again. The fixed allocation portfolio again covers up to 100k, yet the fee is 0.62%, which is made up from management and investment costs. If you go above 100k, there will be a 0.42% fee, made up of 0.25% in management and investment costs.